CIP Financial Plan

Financial Plan - Capital Improvements Plan (CIP)

Annually, the city undertakes a wide variety of infrastructure projects ranging from water/sewer pipe installation to paving of city streets. The same goes for the funding of those projects, with an assortment of funding sources from levying of property taxes to federal appropriations. A constant challenge for the city staff is trying to find resources beyond property taxes to help with maintaining and enhancing the city’s infrastructure while lessening the burden on Windsor Heights’ taxpayers.

The financial plan for the proposed 2018-2022 looks to leverage resources in excess of $14 million.

When discussing a financial plan for a CIP, the issuing of debt to cover project obligations is always a critical factor. The financial plan uses a method of 3 & 8 year infrastructure bonds for permanent financing. The following summary provides a breakdown for each major funding category the city uses to provide resources for projects. Following the summary please refer to the attachments for a detailed view of financing for each CIP project, followed by an analysis from Independent Public Advisors on the impact of the financial plan on the City’s debt service levy.

Property Tax

Property taxes, specifically those collected via the city’s debt service levy, is the largest source of traditional revenue for the proposed CIP, representing about $4.8 million or 34% of the overall financial plan. Property tax revenue is used to make the principal and interest payments for any general obligation (GO) debt issued by the city to pay for infrastructure projects. There are five types of GO debt issued by the city, with all types backed by the full faith and credit of the city’s taxing authority:

For FY 18, the City Council chose to increase the GO Debt service levy from $1.48 to $2.92 in order to borrow approximately $1,181,000. The desire was to stabilize the debt service levy over the next ten years to the proposed rate of $3.00. If the City’s taxable valuation projections were to drastically change, then the debt service levy would need to be reassessed.

Assessment of property taxes is not being recommended at this time for those streets who will receive new sidewalks in the Plan.

Tax Increment Financing (TIF)

The use of tax increment financing (TIF) to abate some of the GO debt issued by the City, is a way for the City to allow for growth, specifically commercial & industrial growth, and pay for itself. The City is expecting to finance near $3.54 million or 25% by utilizing TIF for various infrastructure projects in the Urban Renewal Area.

Road Use Tax

Road Use Taxes, specifically collected for the maintenance, repair and construction of roads, is a traditional source of revenue used for the proposed CIP. This source represents $50,000, which is less than 1% of the overall financial plan. If more RUT funds become available, there is a potential to increase the amount of repair, such as crack and seat/overlay work that can be done during the duration of this plan.

Municipal Utility Revenues

The city’s municipal utilities (water, sewer, storm water) help support numerous infrastructure projects to ensure each utility can adequately provide service to Windsor Heights’s utility customers. Resources from the utility funds make up around $2.17 million, or 15%, of the proposed CIP financial plan. Funds from the utilities go to pay for abatements of the GO issued debt discussed above. Another option is for the utilities to issue debt directly and pay principal and interest payments based on the revenues of the utility. These debt instruments are called Revenue Bonds, and unlike GO Bonds, are not backed by the full faith and credit of the city’s taxing authority. Instead, the Bonds are supported by the amount of revenue each utility generates. One additional debt instrument is a loan from the State Revolving Fund (SRF). Iowa’s SRF provides low-interest loans to communities looking to provide enhanced sewer/water service to its residents. Currently, the City is only utilizing utility resources for GO bond abatements. There is no outstanding SRF or Revenue Bonds for the City. In addition, annual cash transfers are planned from the Water, Sewer, and Storm water Funds to pay for the annual maintenance plans identified in the CIP.

The fees supporting the utilities are analyzed on an annual basis by the city’s financial adviser, from Independent Public Advisors. Due to increases from the City’s water supplier, Des Moines Water Works, Windsor Heights has made substantial increases to its water rates over the past few years, with no change in the rate last year. Multiple water infrastructure projects are planned in the near future and the water utility cash flow has planned for these projects to minimize any impacts of future water rate increases.

Grants, Intergovernmental and Miscellaneous Revenues

Every year city staff looks for opportunities outside of the normal funding mechanisms (property tax and utility rates) to assist with the construction of infrastructure projects. These opportunities can include awards of federal and state grants, regional resources or assistance from other taxing bodies. The proposed CIP financial plan identifies opportunities to receive grant awards or intergovernmental assistance; however at this time the City staff cannot rely on this revenue source. Grants will undoubtedly be explored and if grants have either been applied for already and we are waiting on award announcements, or the city anticipates making future applications for the funding, future CIP’s may identify this as a more reliable source. The City works with neighboring jurisdictions on multiple projects. In the proposed CIP, the City is working with Urbandale on traffic signal improvements to the Hickman Road corridor and West Des Moines on trail connections.

This year the financial plan does rely on a few miscellaneous revenue sources to support CIP projects like the recent street project that considered funds from a previous bond issuance or additional cash available.

Financial Plan Overview

The financial plan presents a diversified approach to funding the proposed 2018-2022 Capital Improvements Plan from many sources. The plan focuses on finding non-traditional revenue sources to lessen the burden on Windsor Heights’ taxpayers and aggressively seeks partnerships for enhancing the city’s infrastructure. This CIP financial plan includes heavy reliance on GO debt through a proposed bond referendum, with substantial investments in infrastructure rehabilitation through TIF and utility user fees. Below is a quick summary of the funding sources.

Funding Source Revenue ($) % of Overall for FY18-28

Tax increment Financing (TIF) 25%

Property Taxes $4,625,000 34%

Municipal Utility Revenues $2,220,000 15%

Road Use Tax $50,000 less than 1%

Grants, Intergovernmental and Miscellaneous Revenues $3,595,700 25%

$14,032,820 100%

The financial plan section completes the submittal of the proposed 2018-2022 Capital Improvements Plan for the City Council’s consideration. If any adjustments in project expenditures are made by the Council, similar adjustments will be made to the financial plan.